NOV. 15, 2011, 215 PM:
I didn't see a feature yet on your site so I thought I'd send
you a couple other good links to commentaries that discuss the
rebate scheme:
Yes, there are several groups like ours (AEI, Galen Institute,
American Action Forum) who share concern that this proposal
amounts to a tax. And yes, those on the other side of the issue
will always question the motives of those who don't share their
beliefs. As I noted in our conversation, I'm working on this
issue because I believe it's the right stance, not out of
monetary motivation. That statement of ethics I sent provides
more background on how we come to policy decisions and how
donations are treated. Let me know what else we can
provide.
226 PM, 11/22/11:
1) "There's nothing in the proposal that calls this a
tax and experts we visited say rebates like the one in
Medicaid never have been called taxes." I don't know who the
experts you consulted are or whatever policy agendas they
may have, but here are people in the health policy field who
agree with the ad's contention that the rebate proposal is
best described as a tax.
Here is Joseph Antos of AEI, who served on the
the Maryland Health Services Cost Review Commission and
advised the Congressional Budget Office. who writes:
Here is Antos with Guy King, former CHIEF ACTUARY for
Medicare and Medicaid, in an AEI paper, writing:
"One of Washington's great political canards is that a
tax on business really does not affect anyone other than the
companies on which the tax is levied. Usually such a foolish
statement is left implicit, but unfortunately that seems to
work for most people. The public often seems to have the
visceral belief that the initial incidence of a tax is also
its final incidence.
Here is Douglas Holtz-Eakin, former CBO Director, who along
with Michael Ramlet writes:
"While it is easy to understand the political appeal of the
rebate proposal and claims of “windfall” based on a
fragmentary view of how Part D works, the policy foundations
deserve closer scrutiny. In the end, not only will the cost of
a new government rebate, like any tax, be borne somewhere else
in the economy, but this analysis shows that seniors will also
be forced to pay much higher premiums for their prescription
drug plans." See:
http://americanactionforum.org/topic/cost-shifting-debt-reduction-american-seniors
Here is Grace-Marie Turner of Galen Institute, who writes:
"Leading congressional Democrats appear ready to
impose a new tax on prescription drugs for seniors -- a tax
that would increase Medicare drug plan premiums for some
seniors by as much as 40 percent. Those
lawmakers wouldn't describe their plan that way, of course,
but that would be the effect of their proposal to require
drug companies to pay Medicaid-style rebates to Medicare."
See: http://www.kaiserhealthnews.org/Columns/2011/July/072511turner.aspx.
2) In another email you had asked, "There's
nothing in the proposal that calls this a tax." My
answer: well, of course not! Supporters call this a rebate
so they can raise revenues for the federal government
without branding their scheme a tax and having to answer a
lot of inconvenient questions about it. Just because they
don't want to call it a tax doesn't mean it won't function
like one (see above). That's exactly the point of our ad,
and our mission for the past 42 years -- exposing attempts
by the political class to cover up a proposal that walks,
talks, and hurts like a tax by calling it something
else.
As the Professor's answer below notes (even though he
has other comments about the ad), "For the pharmaceutical
manufacturers, this rebate functions like a tax." I would
also refer you to the research I sent earlier about how the
LIS rebates will function very much like excise taxes do, on
an ad valorem basis on the product sold. The reporting
system, the method of valuation, the payment remittances all
look like an excise tax.
You had asked: How does Obama's rebate plan translate
to a tax of at least 23 percent "on the Medicare prescription
drug benefit?" Rebates would be paid by drug makers to
government. That's not the same, or even close, to taxing the
Part D benefit itself -- right? It's way closer than you think
when you take a look at some of the projected impacts in the
links and studies I indicate above. As several of the authors
indicate, it amounts to squeezing the bubble. In one scenario,
R&D costs take a hit, so, possibly, drug development slows
and higher hospitalization costs accrue for government
programs (see
http://www.nber.org/papers/w8996).
Or, consumers in private plans bear a bigger cost for their
prescriptions (see
http://mba.yale.edu/faculty/pdf/scottmortontestimony.pdf).
Or, other Medicare Part D beneficiaries (i.e., non-LIS) take a
hit (see
http://www.cbo.gov/ftpdocs/105xx/doc10543/08-28-MedicarePartD.pdf
and
http://americanactionforum.org/sites/default/files/AAF_Part%20D%20Financial%20Impact%202%20.pdf).
Likely, the impact will be a combination of these
factors, plus, perhaps, lower rates of return to shareholders
in the companies, and perhaps fewer job-creation opportunities
within the companies. These have impacts on government
revenues the other way, downward.
3) You asked about the mandatory nature of the
proposal: "That's their choice, no?" To me,
that's like saying someone who lives 20 miles from their job
and can't afford car-registration fee increases can always
choose to stop driving and walk to work. That is a choice
they can make, but not a practical one, and it is influenced
directly by conditions that government creates. One of the
reasons we opposed Medicare Part D's creation was precisely
because it would give government more control over health
care decisions in the economy. As more seniors have opted to
participate in Part D (though some portions of the program
are under automatic enrollment), federally administered
programs have captured a larger share of the overall
prescription drug market. Note the following news article: "Those
filled under a Medicare Part D plan or through Medicaid
represented 30 percent of all prescriptions in 2010 versus 22
percent in 2006 - a clear indication of greater dependence on
government programs for medicines." See:
http://health.yahoo.net/news/s/nm/us_drug_spending
Add in other programs, such as FEHBP and VA, and you
have an increasingly dominant market share by government.
For Congress and the White House to legislate more influence
over drug-purchasing in the United States, and then say,
"well, if you won't pay our latest kickback demands you
can't sell in the empire we've created" is coercive.
Remember, many previous rebate agreements, especially with
government employee insurance, are the product of a
negotiated process between drug manufacturers and plan
administrators. This latest rebate proposal, as well as
equivalents in Congress, would be the product of compulsory
legislation.
4) The only hint at who would pay this tax described in
the ad is the end of the statement, "for low-income
beneficiaries.” Why is that language in the statement? Is it
because you expect the beneficiaries to pay the rebate? The
President's rebate proposal applies to benefits for low-income
individuals, though of course, it might be expanded if it were
to move through Congress. But would these beneficiaries be
affected? The answer is, quite possibly, which is why we raise
a concern. As the Antos-King study notes:
"Focusing on rebates specific to the LIS population ignores
the fact that Part D plans negotiate rebates and price
discounts for drugs on behalf of their entire covered
populations. Policy choices made in the Medicaid program do
not transfer simply to the Part D program, which serves a
broader population. Contrary to claims made by proponents, the
legislation would not restore a similar requirement that
previously existed for dual eligibles, and the wider
application could disrupt a program that is working
well. Perversely, the minimum rebate proposal could
discourage Part D plans from seeking to enroll LIS
individuals. In the current Part D market, manufacturers have
complete flexibility to negotiate discounts with the plans.
Plans with larger enrollments and those that are willing to
set formulary and cost-sharing policies to favor a
manufacturer's products are rewarded with higher
rebates—effectively, lower prices for the pharmaceuticals used
by the plan's enrollees."
There's also the concern that the LIS portion of Part D has
had a low pick-up rate anyway, and it's difficult to imagine a
rebate scheme like this actually improving the rate. See, for
example, the commentary by Kaiser Foundation on pick-up rates
here:
http://www.kff.org/medicare/upload/8094.pdf.